Understanding the numbers of your business is crucial to your success. If you have a grasp of key figures, and have an understanding of your business’ accounts you are more likely to make good business decisions.
Knowing your way around business accounts isn’t something that comes naturally to everyone, but if you are serious about your start-up, investing some time and effort to learn the accounting basics will pay dividends for all business owners.
It certainly did for Paul Oberschneider, who after facing up to his financial shortfalls turned his life around to become a successful entrepreneur, angel investor and author. Here, Paul shows the value of knowing the numbers behind your business;
I recently spoke at an entrepreneur conference at a well-known business school in Oxford. The room was full of experienced professionals who were looking at starting up their own businesses, so had opted to take an entrepreneurial course for a week.
I was one of many speakers throughout the week, and I told my story – how I’d worked as a Wall Street floor trader and lost it all; how I’d started again in Estonia with $400 in my pocket; but most importantly, how I had then grown businesses worth £150 million in such a short period of time.
We talked about commitment, ideas, building a team, networking and branding. I was about to wrap up with a discussion around exit strategies, but first I briefly touched on accounting. I really hadn’t planned to spend much time on it, but I asked the audience who did their own personal accounting every month and was shocked when just two of these experienced professionals raised their hands.
Look after the pennies…
Now, I am not an accountant, I have always kept an eye on my assets, debt and personal cash flow, and for the last twenty-eight years can account for every penny. I look at my personal records every week and do monthly accounts. It keeps me focused and helps me make wise decisions.
I believe that if you do your personal accounting for yourself, you’re much better prepared to manage the finances of your business. I can’t imagine how to do it any other way.
What if things slow down, and your businesses goes bust or cannot support you anymore? You can’t afford to be blindsided by bad news. I’m a big believer in planning ahead.
Don’t wait until there is a problem
During my time working as a floor trader on Wall Street, I lived life in the fast lane. My work was stressful and physically demanding, and to deal with that stress, I played hard. I was young and impressionable and was taken in by all the temptations a big city could offer like a kid unsupervised in a candy store.
I gobbled up as much as I could, like any child might do. The whole thing nearly killed me. By 1987, I was done. I was burned out, struggling with addictions, unfulfilled and broke.
I was then confronted with the harsh reality of the mess I’d made of my life and the amount of money I’d actually wasted. I was always out having too much fun and not being a responsible adult, so when the debt caught up with me it hit me like a tidal wave.
Take control of your finances
One day, my then girlfriend (who is now my wife) discovered a shoebox full of bills I had been ignoring – it was case of “out of sight, out of mind.” She gave me a book about spending plans and getting out of debt written by a guy named Jerrold Mundis. That’s when everything changed for me.
I worked out payment plans with all my creditors, and I stopped being afraid to answer the phone. The real upshot of it, however, was that I started carrying around a little book, and every time I spent money, I’d write it down. At the end of the day, I’d add it all up. Then I started taking those numbers and building a spreadsheet.
Over time, that spreadsheet provided me with history, and I could see figures represented as percentages of the total. I could determine if I was spending too much money eating out, on clothes, or on groceries, or even if I should be spending more in any of those categories. After a few months, it gave me a picture of who I was as a person at that time.
Know your numbers
I don’t carry around a little notebook anymore, I do, however, pull all the numbers from my online bank statements.
I still take the time to go through the monthly numbers, and I have a cash flow chart that covers over twenty years of history. I also have a schedule for net asset value, credit cards, and debt with rates and payment dates.
Some people may read this and think I am an obsessive. And maybe they would be right, but without these tools, I wouldn’t have a clue about where I was, or what I could or couldn’t do. And my guess is that if you’re not keeping track of your simple numbers at home, you’re probably not very good at it in your business.
I find this is the case for many entrepreneurs I speak to – they rely on cash flow to pay their bills, and that can be a very stressful and dangerous place to be.
4 Actions to take to know your business numbers
As a business owner and leader, you need to know where you are, and only numbers will tell you. Here are four actions you can take to improve your chances of success:
1. Start now
OK, so maybe you don’t do your own personal accounting, but now really is the best time to start. There’s no substitute for tracking your income and expenses personally. It keeps you focused and helps you make wise decisions.
2. Break it down
Keep track of all your expenditures for one month. Put them in a spreadsheet and create a forecast for the next month. Create a net asset value page, which shows your assets less costs, plus uplifts less debt.
3. Make it a habit
Of course it might not be easy at first, but do this every month and it will become second nature. Build an annual cash flow chart – it is a powerful tool for business planning, and it allows you to gain wisdom from seeing the effects of past choices, so you can learn from your mistakes.
4. Take pride in your numbers
Relish the knowledge you gain by studying the numbers. You are equipping yourself to make wiser choices, and that is a very positive investment in your business.
About the author
This article has been written exclusively for ByteStart by Paul Oberschneider, a successful entrepreneur, angel investor, speaker and the author of new book, Why Sell Tacos in Africa? published by Harriman House in January 2017. For more information or to download four free chapters go to PaulOberschneider.com
More tips on business finance and funding
You can find lots of help to get your head around your business accounts and finance in these other guides;
- How to choose the best online accounting software for your business
- Guide to Bookkeeping for new business owners
- 15 Questions to ask when hiring an accountant for your small business
- Staying on top of your company accounts – Book-keeping Dos and Don’ts
- Book-keeping basics every new business owner must know
- The way to get paid – 12-Step Action Plan to stop customers from paying you late
- 8 signs that a small business may be approaching insolvency
- ByteStart’s Guide to insolvency, liquidation and bankruptcy for business owners
- Improve your cash flow – 7 ways to make sure your business gets paid on time, every time
- 10 late payment excuses used by customers – and how to deal with them
Funding your business
- What to do when the bank says “NO”!
- How to get your customers to fund your business start-up
- What exactly are invoice finance and factoring, and what benefits can they bring to my business?
- What are business angels and how they can help fund your business?
- Finding finance for your new business – funding advice for start-ups
More on starting a business
ByteStart is packed with help and tips on all aspects of starting and running your own small business. Check out some of our most popular guides;
- 5 things you must do when you go self employed
- 10 advantages running your business as a limited company has over being a sole trader
- How to set up a limited company
- How to choose the best online accounting software for your business
- 15 Questions to ask when hiring an accountant for your new business
Paying less tax
- 10 ways small business owners can pay less tax
- Corporation Tax – How to reduce your bill
- Capital Allowances – A review of the various schemes available for businesses to cut their tax bill
- Using Research & Development tax relief to reduce your corporation tax bill, or claim a tax refund from HMRC.
- How setting up a salary sacrifice scheme can reward staff and mean lower tax bills for employers and employees
- ByteStart’s Guide to the main business taxes
- Dividend tax changes from April 2016 – A summary of the financial effects for small business owners
- Tax rates, thresholds & allowances for small business owners 2015/2016
- How are limited company dividends taxed?
- 10 common Self-Assessment Tax Return mistakes and how to avoid them
- Which types of insurance must your business have?
- Becoming an employer – Your responsibilities when you hire staff
- Health & Safety compliance for small businesses – where do you start?
- A Guide to the National Living Wage for small business owners
- Why it’s vital you have clear ‘Terms & Conditions’ for your business